BESTHOPE INTERNATIONAL LTD v. HIGH FASHION INVESTMENT CO LTD

HCA 1812/2017

[2020] HKCFI 556

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1812 OF 2017

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D E C I S I O N

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Introduction

1.  This is an application by the defendant for leave to adduce expert evidence on 24 January 2020 pursuant to Order 38 rule 36 of the Rules of the High Court, Cap 4A (“the Rules”).

Background

2.  The present action concerns a dispute arising from a joint venture agreement between the plaintiff and the defendant dated 28 November 2013 named《達利集團中國地產合作協議》 (“the JV Agreement”).   By the Statement of Claim dated 3 August 2017, the plaintiff claims against the defendant for breach of the JV Agreement and seeks for an order for the transfer of 49% shareholding in a company established in the PRC named 浙江達利文化創意有限公司 (Zhejiang High Fashion Culture Creativity Company Limited) (“High Fashion Culture”).  There is also a purported pledge document signed with the company chop by 榮暉服飾(深圳)有限公司 (Theme Garments (Shenzhen) Company Limited) (“Theme Garments”) (“the Purported Pledge”).

3.  High Fashion Culture and Theme Garments are not the parties to these proceedings.  The plaintiff issued a Summons to amend the Statement of Claim and join High Fashion Culture and Theme Garments as defendants on 14 March 2019 (“the Joinder Summons”).

4.  The plaintiff also commenced two separate legal proceedings against Theme Garments in Shenzhen on 25 August 2016 (“the Shenzhen Action”), and against High Fashion Culture and its sole shareholder with the defendant joined as third party in Hangzhou on 18 September 2017 (“the Hangzhou Action”), respectively.

5.  In the Shenzhen Action, the plaintiff alleged that the defendant was in breach of the JV Agreement and subsequently agreed to transfer the 49% shareholding in High Fashion Culture pledging the properties of Theme Garments to secure its performance of the said transfer under the Purported Pledge.  The Shenzhen Action was stayed on 19 June 2017 and later dismissed on 4 June 2019 by the Shenzhen Court on the basis that it had no jurisdiction over the JV Agreement.  The plaintiff then appealed to the Guangdong High Court in which the Guangdong High Court ordered the case for retrial on 19 November 2019 (“the Guangdong Judgment”). 

6.  The plaintiff commenced the Hangzhou Action on the basis that the plaintiff was entitled to the 49% shareholding in High Fashion Culture.  Such claim was rejected by the Hangzhou Court on 28 November 2018 (“the Hangzhou Judgment”).  The plaintiff appealed to the Higher People’ Court of Zhejiang but later withdrew its appeal on 14 June 2019, which was approved by the Higher People’ Court of Zhejiang on 20 June 2019.

7.  With a view that the Hangzhou Action has been instituted in parallel with the present action, the defendant issued a Summons to strike out the present action on 12 June 2019 (“the Striking-out Summons”) on the grounds of, amongst other things, res judicata and forum non conveniens.  The substantive hearing for the Joinder Summons and the Striking-out Summons (“the Substantive Hearing”) was originally scheduled on 4 March 2020.

8.  On 17 January 2020, the defendant issued a Summons for leave to file and serve further affirmations with a written expert opinion prepared by a PRC lawyer in support of the res judicata ground (“the Expert Opinion”).  During the hearing for the said Summons on 23 January 2020, it was order by Master Yip that, inter alia, the Expert Opinion be expunged from the court file (“the January Order”). The court further directed the defendant to apply for leave to adduce expert evidence under the proper procedures pursuant to Order 38 rule 36 of the Rules.

9.  Therefore, the defendant took out the present summons on 24 January 2020 (“the Expert Summons”) for leave to adduce the Expert Opinion as expert evidence and rely on the same in the Substantive Hearing under Order 38 rule 36 of the Rules. 

10.  Subsequently, in view of the closure of the courts in the wake of the public health crisis arising from the outbreak of the covid-19 virus, the court gave directions to the parties on 27 February 2020, with their consent, that, inter alia, the Expert Summons is to be processed on papers and the date of Substantive Hearing is to be re-fixed. 

Legal Principles

11.  The principles applicable for leave to adduce expert evidence are well established and should not be in dispute. 

12.  Under Order 38 rule 36 of the Rules, unless the parties agree, no expert evidence may be adduced at the trial without leave of court.

13.  The court adopts a two-stage approach when considering whether leave should be granted. Firstly, the court has to determine whether a prima facie case is made out for the admission of the expert evidence.  Secondly, if the court is satisfied that there is a prima facia case, it has to carry out a balancing exercise taking into account other relevant circumstances, such as the potential disruption to the trial, the prejudice to the other parties, and the explanation offered by the applicant in cases where a late application is made for expert evidence to be adduced. These matters have to be considered and weighed in the light of and against the underlying objectives of the CJR. See Fung Chun Man v Hospital Authority HCPI 1113/2006 at [15] – [16].  

14.  In determining whether the applicant has made out a prima facie case, the guiding criteria are necessity, relevance and probative value.  See Chan Kwok Ming v Hitachi Electric Service Co Ltd, HCPI 322/2002 which was applied in many subsequent cases, including Leung Kang Wai v Dussmann Service Hong Kong Ltd, HCMP 2098/2011, 29 December 2011 at [14], [21].

15.  The evidence is considered to be relevant if it is helpful to the court in arriving at its decision on one or more of the issues to be resolved.   See Wong Hoi Fung v American International Assurance Company (Bermuda) Limited & Shrila Chan [2002] 3 HKLRD 507 at [12].

16.  In Fung Chun Man, Bharwaney J said that the evidence ought to be “of real assistance to the determination of the issues” at [11].  In this regard, expert evidence will be helpful if it will assist the court to resolve one or more relevant issues in dispute in the cause or matter and the issue is not one which the court can come to an informed decision without such expert evidence.  See Fung Chun Man v Hospital Authority, HCPI 1113/2006 at [12].

Prima Facie Case for Admission

17.  One of the central arguments of the defendant to strike out the plaintiff’s action in the Striking-out Summons is that it is an abuse of the process of the court according to the doctrine of res judicta/issue estoppel and forum non conveniens. 

18.  As correctly submitted by Ms Leung, Counsel for the defendant, in Zheng Zhenxin v Chan Chun Keung, HCA 1260/2015 [30], one of three requirements for issue estoppel is that the judgment relied on giving rise to the issue estoppel must be of a court of competent jurisdiction, final and conclusive and on merits. 

19.  To assess the finality and binding effect of the Hangzhou Judgement, an expert evidence on the PRC law in this regard will be in my view of high relevance to the issue.  I agree that the assistance of expert evidence in PRC law is necessary for the court to make an informed decision on the issues of res judicata and forum non conveniens in the Substantive Hearing.  

Late Application and Prejudice

20.  As explained in Fung Chun Man at [16], the court has to carry out a balancing exercise taking into account various factors including the potential disruption to the trial, the prejudice to the other parties, and the explanation offered by the applicant in cases where a late application is made for expert evidence to be adduced. 

21.  Mr Lin, Counsel for the plaintiff, submits that the Expert Summons was taken out at a very late stage and hence the Expert Opinion shall not be adduced unless there are exceptional circumstances making it desirable that it should be adduced pending the hearing of the Substantive Hearing pursuant to Order 32 rule 11A(4) of the Rules.

22.  In fact, after the Striking-out Summons was taken out on 12 June 2019, there had been some developments of both the Shenzhen Action and the Hangzhou Action.  The withdrawal of appeal against the Hangzhou Judgment was approved by the Zhejiang Court on 20 June 2019, and the Guangdong Judgment was delivered on 19 November 2019.  The defendant alleged that it immediately sought PRC legal opinion on these developments which were subsequently considered in the Expert Opinion.  I am satisfied that these developments are necessary to be considered in order to form the PRC law expert opinion as to the issue of res judicata and forum non conveniens.

23.  Mr Lin also submits that the admission of the Expert Opinion may cause prejudice to the plaintiff in view of the Substantive Hearing which was originally scheduled on 4 March 2020. 

24.  However, given the directions of the court on 27 February 2020 to which the parties agreed, the Substantive Hearing fixed on 4 March 2020 was adjourned and to be re-fixed later.

25.  The prejudice to be caused to the plaintiff may be further minimised if reasonable and sufficient length of time is to be given for the plaintiff to prepare its expert evidence in relation to the arguments in the Striking-out Summons and the Joinder Summons.

26.  Having considering all other relevant factors, I am satisfied that the probative value of the Expert Opinion and the expert evidence to be adduced by the plaintiff, if any, will outweigh the potential prejudice that may be done to the plaintiff.  

Abuse of Process

27.  Mr Lin submits that the issue of the Expert Summons is an abuse of process as Master Yip refused to allow the defendant to adduce the Expert Opinion as evidence by the January Order and the defendant did not appeal the January Order.  Such argument is misconceived.

28.  By the January Order, Master Yip ordered the defendant to expunge the Expert Opinion exhibited in the 7^th affirmation of Lam Gee Yu Will and directed the defendant to apply for adduce the Expert Opinion as expert evidence in accordance with the proper procedures under Order 38 rule 36 of the Rules.  Master Yip did not make any order to disallow the defendant to adduce the Expert Opinion in evidence.  Nor the Expert Summons is an appeal to the January Order.

29.  The defendant has now issued the Expert Summons under the proper procedures. Hence, the plaintiff’s argument of abuse of process is not made out.

Disposition

30.  In light of the above and on the balance of justice, I am prepared to grant leave to the defendant as sought in paragraph 1 of the summons issued on 24 January 2020.

31.  To ensure fairness, I further grant leave to the plaintiff to adduce its expert evidence in reply with 28 days from the date hereof and rely on the same for the Substantive Hearing.

32.  I order that the plaintiff shall pay the defendant’s costs of the Expert Summons, such costs to be summarily assessed and paid within 14 days of assessment.  D is to submit a statement of costs within 7 days and P to submits its list of objections within 7 days thereafter.  The costs order is an order nisi and shall be made final after 21 days.