CHINA SHANSHUI CEMENT GROUP LTD AND OTHERS v. ZHANG CAIKUI AND ANOTHER

HCA 2880/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2880 OF 2015

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REASONS FOR DECISION

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Introduction

1.  On 8 January 2016, Au-Yeung J granted an order for inter alia:

(a) continuation of an injunction granted by Lok J restraining the 1^st and 2^nd defendants from disposing of property belonging to the plaintiffs, and from concealing, destroying or tampering with or removing from Hong Kong the books and records of the plaintiffs, and requiring them to deliver the plaintiffs’ records in their possession over to the plaintiffs’ solicitors;

(b) disclosure of information on assets received from the plaintiffs, the current whereabouts of these assets, and how they are held;

(c) disclosure of information concerning the plaintiffs’ records;

(d) a prohibitory injunction to restrain them from acting upon the unlawfully altered Articles of Association of Shangdong Shanshui Cement Group Company Limited (“Shangdong Cement”) and/or misapplying any assets of Shangdong Cement or any of its subsidiaries;

(e) a mandatory injunction to compel them to execute corrective amendments to the Articles of Association of Shandong Cement, failing which the Registrar of the Court shall do so on their behalf.

2.  Au-Yeung J further ordered that until the 1^st and/or 2^nd defendants file acknowledgment of service in the present action, leave be granted to the plaintiffs to serve out of jurisdiction any summons, notice or order given or made in the present action on him or them (“Au- Yeung Order”).  This order concerned ordinary service of summonses, notices and orders out of jurisdiction on the 1^st and 2^nd defendants.

3.  The background to the present action and the reasons for granting the Au-Yeung Order are set out Au-Yeung J’s Reasons for Decision handed down on 15 January 2016 (“Reasons”).  I gratefully adopt them, and will not add to the length of these Reasons for Decision by repeating them here.  Unless otherwise indicated, I also adopt the abbreviations used in the Reasons.

4.  On 3 February 2016, the plaintiffs filed a summons to seek inter alia orders to “fill the gaps” in the previous court orders concerning service on the 1^st and 2^nd defendants (“Summons”).  It was supported by the 4^th affirmation of the plaintiffs’ solicitor Keith Man Kei Ho (“4^th Ho Aff”).

5.  According to the Amended Writ of Summons, the respective usual and last known address of the 1^st and 2^nd defendants was in Jinan City, Shangdong Province, Mainland China (“PRC Addresses”).

6.  By the amended order of Lok J dated 24 December 2015 (“Lok Order”), leave was granted for the plaintiffs to issue/serve a Concurrent Amended Writ of Summons (“CAWS”) (a) on the 1^st defendant out of jurisdiction at his PRC Address and by service on Deacons, and (b) on the 2^nd defendant out of jurisdiction at his PRC Address. This order concerned personal service of the CAWS but not any other document.  Deacons were/are the 1^st defendant’s Hong Kong solicitors in other legal proceedings.

7.  By the Summons, the plaintiffs sought to plug the following “gaps” concerning service on the 1^st and 2^nd defendants:

(a) personal service of the CAWS on the 2^nd defendant within the jurisdiction;

(b) personal service of documents (other than the CAWS) on the 1^st and 2^nd defendants within the jurisdiction;

(c) ordinary service of documents (other than the CAWS) on the 1^st and 2^nd defendants within the jurisdiction.

8.  The Summons was returnable before Au-Yeung J on 5 February 2016.  At that hearing, Au-Yeung J granted leave for the plaintiffs to serve the Summons, the order she made on 5 February 2016 and all related documents (including inter alia the relevant affirmation(s) in support, and the plaintiffs’ skeleton argument and list of authorities) on the 1^st and 2^nd defendants by way of substituted service on Deacons, and adjourned the hearing of the Summons to 12 February 2016 before this court.

9.  The Summons, the order of Au-Yeung J dated 5 February 2016 and related documents, eg the 4^th Ho Aff and the plaintiffs’ skeleton argument and list of authorities, had been served on the 1^st and 2^nd defendants by way of substituted service on Deacons.  But on 5 February 2016, Deacons returned the Summons, the 4^th Ho Aff, and the plaintiffs’ skeleton argument and list of authorities to the plaintiffs’ solicitors, stating they did not have instructions to accept service of any such documents.[1]

10.  On 11 February 2016, ie a day before the adjourned hearing of the Summons, the plaintiffs filed the 5^th affirmation of Keith Man Kei Ho (“5^th Ho Aff”) in support of the Summons.  But no affirmation of service was filed for the 5^th Ho Aff.  At the adjourned hearing of the Summons on 12 February 2016, Mr Chen, counsel for the plaintiffs, advised that the 5^th Ho Aff was served on Deacons the day before (ie 11 February 2016) at about 5:00 pm.

11.  The purpose of the 5^th Ho Aff was to set out further evidence concerning the relationship between Deacons and the 1^st and 2^nd defendants.  Concerning the relationship between Deacons and the 1^st defendant, the need for further affirmation to exhibit certain correspondence received from CSI had been alluded to already in paragraph 3.16(4) of Mr Chen’s skeleton argument dated 4 February 2016.  Concerning the relationship between Deacons and 2^nd defendant, the further documents exhibited to the 5^th Ho Aff were drawn from the bundle of documents sent by the 3^rd defendant’s solicitors under cover of their letter dated 20 January 2016 to the plaintiffs’ solicitors.

12.  There was no satisfactory explanation why the plaintiffs delayed filing/serving the 5^th Ho Aff until close of play on the day before the adjourned hearing of the Summons when they had access to the relevant documents/materials at an earlier time.  I bear in mind that initially the plaintiffs made the present application on ex parte basis, but Au‑Yeung J directed the application to be made inter partes.  Further, as demonstrated by the order by Au-Yeung J dated 5 February 2016, there was anxiety that all related documents, including the relevant supporting affirmation(s), be served on the 1^st and 2^nd defendants.  Given the unexplained delay in serving the 5^th Ho Aff only by close of play on the day before the adjourned hearing of the Summons, and as neither the 1^st and 2^nd defendants nor Deacons appeared at such adjourned hearing, I declined to allow the plaintiffs to rely on the 5^th Ho Aff for the purpose of the Summons.

Status of service on the 1^st and 2^nd defendants

13.  The 1^st defendant had been personally served with the CAWS within the jurisdiction by service on Deacons pursuant to the Lok Order.  Deacons had since retained the CAWS.  Application had been made to the High Court to serve the CAWS on the 1^st and 2^nd defendants out of jurisdiction in Mainland China via the PRC judicial authorities, but as yet service had not been successfully effected via this route.  Mr Chen submitted the orders sought under the Summons were ancillary to the Lok and Au-Yeung Orders, and it would be just and convenient for such orders to be made.

1^st defendant

14.  The reliefs prayed for in paragraph 1 of the Summons concerned the 1^st defendant, and they sought to fill the “gap” in relation to substituted personal and ordinary service of any document on the 1^st defendant by service on Deacons.

15.  In relation to substituted personal service, Mr Chen relied on (a) Order 65 rule 4 of the Rules of the High Court (“RHC”), which provision was previously relied on by the plaintiffs to seek the substituted personal service order for service of the CAWS on the 1^st defendant under the Lok Order, and (b) the inherent jurisdiction of the court “to do justice between the parties and to secure a fair trial between them”.[2]

16.  Mr Chen reminded that by the order dated 8 January 2016, Au-Yeung J granted a mandatory injunction compelling the 1^st and 2^nd defendants to execute the corrective amendments.  By the Reasons, the learned judge explained there was no discernible commercial purpose for the unlawfully altered articles, and the overall effect of the alterations appeared to be “an attempt to thwart the Zhangs’ impending removal from the GroupCo Board and to entrench the Zhangs’ control over the Group’s assets through Shangdong Cement for at least another 3 years.  This would give the Zhangs free rein over Shangdong Cement and hence its assets.  There was apparent lack of honesty and good faith on the part of the Zhangs”.[3] I note one of the effects of the unlawfully altered articles was to remove the right of Shangdong Cement’s shareholders (Pioneeer) to replace any director removed, and to replace it with a provision preventing the shareholders from dismissing any director from office before expiry of a 3-year term.[4]

17.  Mr Chen submitted it was imperative to effect the corrective amendments because the unlawfully altered articles by entrenching the 1^st and 2^nd defendants’ control of the board of Shangdong Cement gave wide-ranging powers to them to deal with Shangdong Cement’s significant assets with associated risk of dissipation and irreparable harm to the plaintiffs.  In paragraph 58 of the Reasons, Au-Yeung J alluded to the urgency for hearing the application before her even in the absence of the 2^nd defendant as there was concern that the 2^nd defendant “had, at least in the attempt to winding-up GroupCo, demonstrated that he might engage dishonest means to further his (and [the 1^st defendant’s]) purpose.  Unless the orders sought were put in place, it is possible that [the 2^nd defendant] (alone or with [the 1^st defendant]) would take steps to put valuable assets and records beyond the reach of plaintiff”.  In my view, such urgency is no less relevant now than it was before Au-Yeung J.      

18.  What gave rise to immediate concern was the caveat in the order by Au-Yeung J dated 8 January 2016 that the 1^st and 2^nd defendants were not required to execute the corrective amendments until they were served with such order, and they had 21 days thereafter to do so, failing which the Registrar of the High Court could execute the corrective amendments on their behalf. It would take time to effect service of the order by Au-Yeung J dated 8 January 2016 on the 1^st and 2^nd defendants out of the jurisdiction via the PRC judicial authorities (possibly a few months), and in the absence of a substituted personal service order for service on the 1^st and 2^nd defendants by service on Deacons, the 21-day period would not be triggered and the unlawfully altered articles would remain in place for several more months, which Mr Chen feared would cause irreparable harm to the plaintiffs.

19.  Since the order requiring the 1^st defendant to execute the corrective amendments was a mandatory injunction, the plaintiffs sought an order for substituted personal service in contra-distinction to substituted ordinary service so that if the 1^st defendant failed to comply with such order after it was served on him, the plaintiffs could commence contempt proceedings if considered appropriate.[5]

20.  The request for a substituted personal service order for the 1^st defendant by service on Deacons was nothing new for (a) Lok J had granted substituted personal service order for service of the CAWS on the 1^st defendant by service on Deacons under the Lok Order, and (b) Au-Yeung J had granted leave for service of summonses, notices and orders on the 1^st defendant out of jurisdiction under the Au-Yeung Order.  The interaction of the Lok and Au-Yeung Orders suggested the gateways in Order 11 rule 1(1) of the RHC for service out of jurisdiction had been satisfied, and there was nothing new about Deacons as substituted service recipient.

21.  I am satisfied expeditious service of the order by Au-Yeung J dated 8 January 2016 is required to minimise the risk of harm to the plaintiffs whilst there would be little prejudice to the 1^st defendant who, in the words of Au-Yeung J, had chosen to ignore the present proceedings even though he had engaged Deacons to deal with other litigation in Hong Kong even as recently as in January 2016.[6] Mr Chen persuaded me that it would be just to grant a substituted personal service order for service of any document on the 1^st defendant by service on Deacons until the 1^st defendant acknowledges service herein.  To save time and costs, it would be also convenient to grant such order to cover the possibility that future orders (or other documents) may require personal service.  The history of this litigation so far suggested there is likelihood of a future need to serve documents, perhaps personally, on the 1^st defendant.  I will discuss below why Deacons is an appropriate substituted service recipient vis-à-vis the 1^st defendant.

22.  In relation to substituted ordinary service, Mr Chen relied on Order 65 rule 5(1)(d) of the RHC, and he also invoked the inherent jurisdiction of the court.  It was suggested that the essential purpose of the Lok Order was to enable efficient but effective service of the CAWS so that progress of the present action would be expedited, and that the substituted ordinary service order presently sought under the Summons for service of documents on the 1^st defendant by service on Deacons would supplement and give effect to such purpose.  In the particular circumstances of the present action as explained in the Reasons, and the urgent need to deal with the corrective amendments, I accept it would not be conducive to securing an efficient and fair trial between the parties if the advantages gained by prompt service of the CAWS were nullified by the need to serve every summons, notice or order on the 1^st defendant via the PRC judicial authorities.  I am satisfied it is appropriate to grant a substituted ordinary service order for service of any document on the 1^st defendant by way of service on Deacons until he acknowledges service herein. 

23.  I now turn to explain why I consider Deacons to be an appropriate substituted service recipient for the 1^st defendant.  As Mr Ho explained in the 4^th Ho Aff, as far as the plaintiffs were aware, Deacons remained as solicitors for the 1^st defendant with no indication they had so ceased to act:

(a) Although Deacons wrote to the plaintiffs’ solicitors on 7 and 26 January and 5 February 2016 to say they had no instructions to accept service of any court document on behalf of the 1^st defendant, and they had returned various court documents in the present action that had been sent to them, they had retained the CAWS,[7] the Statement of Claim and the Lok Order.  This suggested Deacons had communicated with the 1^st defendant regarding the present action, and the 1^st defendant did not give them any instructions to accept service herein.

(b) On 12 January 2016, Deacons appeared on behalf of the 1^st defendant at a hearing before Chow J in the Trust Actions concerning a strike out application.

24.  Although Deacons claimed they had no instructions to accept service of court documents in the present action on behalf of the 1^st defendant, and had returned some court documents to the plaintiffs’ solicitors, it was plain they remained as solicitors for the 1^st defendant.  I am satisfied substituted personal/ordinary service could be effectively achieved by serving the relevant court documents on Deacons.

2nd defendant

25.  The Lok Order granted leave for the CAWS to be served on the 2^nd defendant out of jurisdiction, but had not granted leave for the plaintiffs to effect personal service on the 2^nd defendant within the jurisdiction.  The plaintiffs did not ask for such order at the time of the Lok Order because at that stage they were unaware of any address, person or entity in Hong Kong that was related to the 2^nd defendant.

26.  But on 6 January 2016, the 3^rd defendant’s solicitors sent certain documents/materials to the plaintiffs’ solicitors.  Upon review of such documents/materials, the plaintiffs found a copy letter dated 24 July 2015 from Deacons that confirmed they acted for the 2^nd defendant.  In such letter, Deacons’ handling solicitors appeared to be the same solicitors who stated in correspondence they had no instructions to accept service of court documents in the present action.  Such correspondence had the same file reference and same initials for the relevant handling solicitors.  Mr Chen, therefore, submitted it was not unlikely that Deacons after receiving/reviewing the CAWS informed the 2^nd defendant of the present action and the claims against him.  The plaintiffs were unaware of any matter to suggest Deacons had ceased to act for the 2^nd defendant. 

27.  Hence, on the same basis as explained above in relation to the 1^st defendant, the plaintiffs sought substituted personal service of the CAWS on the 2^nd defendant within the jurisdiction by service on Deacons to mirror the substituted personal service order for the 1^st defendant under the Lok Order.  The plaintiffs also sought substituted personal and ordinary service orders for service of any document on the 2^nd defendant by service on Deacons on the same grounds mutatis mutandis set out above for the 1^st defendant.   

28.  I was satisfied it was just and convenient to grant the orders sought which are to remain in place until the 2^nd defendant acknowledges service herein, and I was unable to discern any prejudice as the 2^nd defendant had ignored the present proceedings. As explained by Au-Yeung J, there was also concern he might engage dishonest means to further his and/or the 1^st defendant’s purpose to put valuable assets and records beyond the reach of the plaintiffs. 

Conclusion

29.  In the circumstances, at the adjourned hearing of the Summons on 12 February 2016, I granted the following orders.

(a) until the 1st defendant files an acknowledgment of service herein, leave be granted to the plaintiffs to effect service on the 1^st defendant of any document by service upon Deacons, and for the avoidance of doubt, service of any document(s) in accordance with this paragraph constitutes effective personal or ordinary service of such document(s) (as the case may be) on the 1^st defendant;

(b) without prejudice and in addition to the Lok Order causing service on the 2^nd defendant, the plaintiffs also do have leave to serve a copy of the CAWS by service upon Deacons;

(c) until the 2^nd defendant files an acknowledgment of service herein, leave be granted to the plaintiffs to effect service on the 2^nd defendant of any document by service upon Deacons, and for the avoidance of doubt, service of any document(s) in accordance with this paragraph constitutes effective personal or ordinary service of such document(s) (as the case may be) on the 2^nd defendant;

(d) the time for acknowledgement of service in this action by the 2^nd defendant shall be 28 days after the service of the CAWS on him;

(e) costs be reserved.