CITY EXPRESS INVESTMMENT LTD AND OTHERS v. ZHANG DA WAI

HCA1673/2003

 IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTIONNO. 1673 OF 2003

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JUDGMENT

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1.  This is the defendant’s appeal against the decision of the Master made on 16 December 2003 dismissing his application for stay of the proceedings in this action with costs.

Background

2.  The 1^st and 2^nd plaintiffs are companies incorporated in Hong Kong.  The 3^rd plaintiff and the defendant are residents of Hong Kong.  The 3^rd plaintiff is a shareholder and director of the 1^st and 2^nd plaintiffs.  The defendant is a PRC lawyer said to be in the employment of 中國人民解放軍總政治部司法局法律顧問處 (translated as the Legal Advisory Division of the Justice Bureau head of the General Political Department of the People’s Liberation Army of the PRC) (“PLA Legal Advisory Division”).

3.  In 1994, the 1^st and 2^nd plaintiffs entered into agreements with one Beijing Xinglong Park Limited (北京興隆公園有限公司) (“Beijing Xinglong”) for the development of two blocks of apartments in the Beijing Xinglong Lakeside Villa Project (北京興隆湖景别墅) (“the Beijing Properties”).  The contractual completion date was 30 September 1994.  Pursuant to the agreements, the 1^st and 2^nd plaintiffs had each paid sumstotalling HK$96,600,000 to Beijing Xinglong as deposits and purchase price for the Beijing Properties.  Subsequently, disputes arose between the 1^st and 2^nd plaintiffs and Beijing Xinglong.  It is the plaintiffs’ contention that Beijing Xinglong failed to deliver possession of the Beijing Properties to the 1^st and 2^nd plaintiffs on the agreed completion date and further failed to pay interest for the period of delay as stipulated in their agreements.

4.  In June 2000, the 3^rd plaintiff came to know the defendant.  According to the plaintiffs, the 3^rd plaintiff acting on behalf of the 1^st and 2^nd plaintiffs had subsequently agreed to and did appoint the defendant as their agent to recover the possession of the Beijing Properties.  It is not in dispute that a number of documents were signed by the 3^rd plaintiff on behalf of the 1^st and 2^nd plaintiffs in connection with the taking of proceedings in the mainland to deal with the dispute over the Beijing Properties.  They are as follows:

(1)       A special authorization (特别授權) dated 12 March 2001;

(2)       A letter of authorization (授權委托書) dated 12 June 2001;

(3)       A legal service agreement (涉外律師業務委托代理協議) dated 19 September 2001:

(4)              Two letters of authorization (授權委托書) dated 28 September 2001; and

(5)       Two letters of authorization (授權委托書) dated 15 April 2002.

5.  The legal service agreement dated 19 September 2001 contain the following terms:

(1)	中國衛士基金組織 (translated as China Themis Funds Organization of China) was appointed as the agent of the 1st and 2nd plaintiffs in charge of the legal proceedings to pursue civil and economic rights and criminal prosecutionsrelating to the Beijing Properties (clause 1).
(2)	The PLA Legal Advisory Division was appointed as the agent of the 1st and 2nd plaintiffs responsible for providing legal services incidental to the said legal proceedings (clause 5).
(3)	The 1st and 2nd plaintiffs agreed to pay lawyer fees as stated in the agreement by paying a deposit of HK$ 1 million to China Themis Funds Organization upon the signing of the agreement, with the balance of the lawyer fees to be paid in one go after the completion of the legal proceedings (clause 6).
(4)	The parties agreed that the agreement is protected by the laws of the PRC and the laws of Hong Kong (clause 8).

6.  It is the plaintiffs’ case that the legal service agreement provided for the lawyer feesto be at 10% of the total amount actually recovered in the proceedings.  The defendant however contends that the 10% is calculated by reference to the amount of the claim.

7.  Under the two letters of authorization dated 28 September 2001, which were signed by the defendant and the 3^rd plaintiff on behalf of the 1^st and 2^nd plaintiffs respectively, the defendant was appointed as the principal agent of the 1^st and 2^nd plaintiffs and as their authorized representative for the conduct of the various proceedings against Beijing Xinglong as set out therein, and for the settlement and payment of litigation fees and lawyer fees (代為主持訴訟費支付和清算；代為主持律師費清算).

8.  It is not disputed that various legal actions and proceedings had been brought in the Beijing courts in connection with the dispute over the purchase of the Beijing Properties, and judgments in favour of the 1^st and 2^nd plaintiffs had been obtained in some of the them.

9.  Between October 2001 and June 2002, the 3^rd plaintiff on behalf of the 1^st and 2^nd plaintiffs paid to the defendant five sums of moneytotalling HK$10,249,366.  Out of them, HK$ 1 million was as deposit for the lawyer fees.  According to the defendant, the balance of HK$9,249,366 was as reimbursement of costs, expenses, court fees and charges incurred by the PLA Legal Advisory Division for the 1^st and 2^nd plaintiffs.

10.  By a notice of termination of appointment dated 4 April 2004 signed by the 3^rd plaintiff, the 1^st and 2^nd plaintiffs terminated the appointment and authorization of the PLA Legal Advisory Division.  On 7 April 2004, a Mr Yang Xiang Wen (楊學民) of the PLA Legal Advisory Division signed to acknowledge receipt of the notice.  Mr Yang also wrote on the notice that the PLA Legal Advisory Division had not received payments of HK$10,249,360 as set out in the notice.  

The application for stay

11.  On 12 May 2003, the plaintiffs commenced the present action against the defendant claiming for an account of how the sum of $10,249,366 was applied and for payment of any sum found due upon the taking of account.  The Writ was served on the defendant in Hong Kong. The defendant had filed an acknowledgement of service. Subsequently, the Statement of Claim was re-amended to add a plea in the tort of deceit and a claim for damages for breach of fiduciary duty and for deceit.

12.  On 16 July 2003, the defendant issued a summons applying to stay all the proceedings in this action on the ground of forum non convenien on the basis that the Beijing courts are the more appropriate forum.  On 16 December 2003, the Master handed down his decision dismissing the defendant’s summons.  On 22 December 2003, the defendant filed the present notice of appeal.

The test

13.  There is no dispute and Mr Ku for the defendant accepts that the Hong Kong court has jurisdiction over the claim.  Accordingly, in order to succeed in the stay application, the defendant must establish that the Beijing courts are clearly or distinctly the more appropriate forum to adjudicate on the dispute.  It would not be enough to show that the Beijing courts are equally appropriate as the Hong Kong court to deal with the claim: Spiliada Maritime Corporation v. Cansulex Ltd [1987] 1 AC 460, and Yu Lap Man v. Good First Investment Ltd [1998] HKC 726, at 734B-E.

The grounds for the stay application

14.  From the defendant’s affirmations and from Mr Ku’s submission, the grounds relied by the defendant in contending that the Beijing courts are the more appropriate forum can be summarized as follows:     

(1)	The presentclaim involves interpreting the terms of service or employment of the mainland lawyers under the letters of authorization and the legal service agreement, all of which are matters of PRC law.
(2)	The present claim is related to the proceedings that had been heard in the Beijing courts.  The plaintiffs’ claim is in fact a continuation of the proceedings in the Beijing courts. Therefore, to litigate the present claim in Hong Kong is to artificially sever a dispute from the set of proceedings in the mainland.
(3)	Owing to the involvement of the PLA, and because of the sensitive nature of the evidence, there will be restrictions over disclosure of documents and the evidence cannot be tendered in the Hong Kong court.  The defendant will be put under a disadvantageous position if the claim is to be adjudicated in Hong Kong.

15.  In the defendant’s affirmations, it was also mentioned that the lawyers involved in the case would not be able to obtain the necessary exit visa to come to Hong Kong to testify.  Mr Ku in his submissions no longer relies on this point about the non-availability or inconvenience of witnesses.  Indeed with modern technology, the fact that witnesses cannot travel to Hong Kong to testify in court is no longer a factor of great significance.

The parties’ case and the issues in dispute

16.  In order to assess the grounds relied upon by the defendant, it is necessary to briefly examine the parties’ case and the issues in dispute.

17.  In essence, the plaintiffs’ claim is that the defendant in his capacity as the plaintiffs’ agent, had received the money for the specific purpose of paying lawyer fees and reimbursing the costs and expenses, court fees and charges incurred.  As such, he is liable in contract and by reason of his fiduciary duty as agent to account to the plaintiffs how the money had been applied. 

18.  As for the claim in deceit, the plaintiffs’ case is that the plaintiffs were only obliged under the legal service agreement to pay HK$ 1 million as deposit for lawyer fees, and were not obliged to make payment for advance lawyer fees before the completion of the proceedings against Beijing Xinglong.  The plaintiffs say that the defendant had falsely represented the purposes and reasons for the payments of the money by representing that they were to reimburse the “out-of-pocket” court expenses and charges.  In fact, the PLA Legal Advisory Division and the China Themis Funds Organization did not incur costs and expenses on behalf of the plaintiffs in the amount represented by the defendant.  The plaintiffs also say that the documents and materials revealed by the defendant show that out of the money paid by the plaintiffs, HK$ 2 million was received by China Themis Fund Organization as “donations”, another HK$ 4 million was received by the PLA Legal Advisory Division as “advance lawyer fees”, and HK$ 1 million was received by the defendant as “advance settlement of legal consultation fees, subsidies for traveling, communication and living expenses, and notarization fees”.  The plaintiffs case is that the defendant made the false representation knowing they were false and with the intention of luring the plaintiffs to make the payments. 

19.  Despite the lengthy affirmations together with the many exhibits filed by the defendant, it is not altogether clear what precisely is the defendant’s case or defence to the claim.  The bulk of his affirmations deal with the plaintiffs’ disputes with Beijing Xinglong and the actions and proceedings taken in the mainland in connection with the disputes.  The defendant had also gone at considerable length to explain the role and relationship between China Themis Fund Organization and PLA Legal Advisory Division, and the manner in which lawyer fees are to be charged and paid in the mainland.  All of these are however irrelevant and immaterial to the plaintiffs’ claim.  Mr Ku who only appears for the defendant on the appeal accepts, too, that there are a lot of irrelevant materials in the affirmations.

20.  It would appear that the broad grounds of the defendant’s defence are that:

(1)	It was PLA Legal Advisory Division and China Themis Fund Organization, and not the defendant that were employed by the 1st and 2nd plaintiffs.  The defendant was involved in his capacity asa lawyer of the PLA Legal Advisory Division.  The defendant therefore owes no contractual or fiduciary duty to the plaintiffs
(2)	The PRC law is the governing law and under the PRC law, there is no duty to account.  Even if the duty to account does exist, the duty is not owed by the defendant

It is, as observed above, not clear from the affirmations and the submission what the defendant’s defence is with respect to the claim in deceit.

The Beijing courts the more appropriate forum ?

21.  On the claim for account, there are two main issues in dispute, namely, whether the defendant is employed by the 1^st and 2^nd plaintiffs, and whether the defendant is under a contractual or fiduciary duty to account.  On the first issue, it involves determining the relationship between the plaintiffs and the defendant.  It is primarily an issue of interpretation of the various documents signed by the parties, notably the four letters of authorizations, which were all executed in Hong Kong at a solicitors’ office.

22.  Mr Ku submits that the two letters of authorization dated 28 September 2001 are merely procedural documents intended for filing with the mainland courts and are documents ancillary to the legal service agreement, and reliance should not be placed on them in determining the relationship between the plaintiffs and the defendant.  This submission is, however, not supported by the expert evidence adduced by the defendant.  In the Opinion of Professor Wang (王明毅) dated 23 June 2004 (at paragraph 6), it is stated that all the four letters of authorization have binding legal effect under Article 59 of the Civil Procedure Law of the PRC.

23.  Mr Ku also submits that the legal service agreement has to be interpreted in accordance with the PRC laws, either solely or in conjunction with consideration based on Hong Kong law, hence the interest of the parties is more suitably served by having the case tried in the mainland.  This submission stems from the Opinion of Professor Wang, which stated (in paragraph 9) that because the parties did not choose the law of other places to be the applicable law, the applicable law for the legal service agreement should be the PRC law.  In so stating, Professor Wang had not referred to clause 8 of the legal service agreement, which stipulates that the agreement is protected by both the PRC law and the Hong Kong law.  He had also not explained why despite clause 8, the agreement remains to be governed by the PRC law when Article 145 of the General Principles of the Civil Law of the PRC provides that the parties to a contract involving foreign interests, of which the legal service agreement is one, may choose the applicable law for settling the disputes over the contract. 

24.  In Ho Siu Pui v. Yue Sheng Finance Limited & Ors [2003] 1 HKC 621, Woo JA in dealing with a contract that provides for it to be protected by the laws of both Hong Kong and the PRC, observed that “there is nothing wrong for the plaintiff to choose the Hong Kong High Court as the forum for resolving the disputes and to seek the protection of the Hong Kong Law”.  In the premises, notwithstanding the Opinion of Professor Wang, it cannot be said that the legal service agreement has to be interpreted in accordance with the PRC law thereby rendering the Beijing courts the more appropriate forum .

25.  Additionally, Mr Ku submits that the interpretation of the documents and the PRC law is better done in the mainland courts because they stand to have a better understanding of how things are done in the mainland, and that the letters of authorization and the legal service agreement are documents that they would frequently come across.  I am unable to accept this submission.  Firstly, it is as a matter of principle inappropriate to compare the competency and experience or otherwise of two jurisdictions.  Secondly, there is no basis for suggesting or believing that the Hong Kong court does not have the requisite ability and skill to interpret legal documents, whether of the kind in question or generally.  Thirdly, the evidence before the court does not show that special skill is required to interpret the legal documents in question.

26.  Turning to the second issue on the claim to account, the expert evidence tendered by the defendant is not conclusive of the issue and does not support the defendant’s contention that there is no duty to account under the PRC law.  As pointed out by Mr Pow in his submissions, Professor Wang only stated that the legal service agreement did not expressly provide for a duty to account.  Professor Wang did not state whether a duty to account could arise as a matter of law under the legal service agreement.  He also did not address the effect of the four letters of authorization that are also relied upon by the plaintiffs.  In the circumstances, there is no evidence to support the contention that the PRC law and the Hong Kong law differ as to whether there is a contractual or fiduciary duty on a lawyer to account to his client for money had and received.  The Hong Kong court will have to proceed on the basis that the PRC law and the Hong Kong law are in this regard the same and no difficulty will arise in the application: Palace Hotel Ltd v. Owner of Happy Pioneer (a ship) [1982] HKC 640.

27.  Mr Ku has also made the point that the proper parties to account to the plaintiffs are PLA Legal Advisory Division or China Themis Fund organization, and that either the plaintiffs should join them as a party to the proceedings or the defendant should be given the opportunity to join them.  It is said that in either case, the mainland courts are to be preferred for the interests of all the parties and the ends of justice.  There is however no explanation or elaboration on the reasons for regarding the Beijing courts asthe more appropriate forum.

28.  As to the claim in deceit, the issues are likely to be factual.  As the matter now stands, the plaintiffs’ case of falsity is largely built upon the documents disclosed by the defendant in these proceedings.  At the same time, the fraud is said to have been committed in Hong Kong with the damage suffered by the plaintiffs in Hong Kong.  There is on the materials nothing to suggest that the Beijing courts are a more appropriate forum than the Hong Kong courts.

29.  It would appear that the main thrust of Mr Ku’s submissions is that the present claim is a continuation of the mainland proceedings and that the complaints of the plaintiffs cannot be tried without due regard to the law and practice of the PRC in relation to the mainland proceedings. The analysis of the plaintiff’s claim and the issues in dispute show that the present claim is not a continuation of the mainland proceedings.  The litigations concerning the Beijing Properties only provide the background to the present claim.  The submission that to litigate the present claim in Hong Kong is to artificially sever it from the set of proceedings in the mainland is untenable.

30.  Mr Ku further argues emphatically that the way of doing things in the mainland is very different from that in Hong Kong.  Hong Kong court may therefore find certain practices and events very unusual and difficult to believe when those are in fact the way of doing things in the mainland.  It is further said that those practices would not be understood by Hong Kong court.  Apart from the fact that this is a  vague and loose submission, it is also in my view an extraordinary submission.

Multiplicity of proceedings

31.  The evidence filed by the defendant after the lodging of the present appeal reveals that China Themis Fund Organization had commenced litigation against the 1^st and 2^nd plaintiffs in the Beijing Intermediate Court.  The Beijing litigation was brought on 25 April 2004, well after the present claim was brought.  This is therefore not a case of lis alibi pendens.  Any multiplicity of proceedings would also seem to be self-generated.  Further, while it is said that the Beijing litigation has a more comprehensive coverage, it does not appear from the document exhibited that the defendant and the 3^rd plaintiff are parties to the litigation.  It is therefore doubtful whether the issues or relief sought in the present claim will be addressed in the Beijing proceedings.

Conclusion

32.  For the reasons mentioned above, the defendant has failed to demonstrate that the Beijing courts are a clearly and distinctly more appropriate forum.  The Master is correct in dismissing the defendant’s summons for a stay of the proceedings in this action.  Accordingly, the defendant’s appeal is dismissed.  The normal rule of costs follow event applies.  There is an order nisi that the defendant pays the plaintiffs the costs of the appeal, to be taxed if not agreed.