DYNASTY LINE LTD (Provisional Liquidators appointed) v. SUKAMTO SIA AND ANOTHER

CACV 180/2008 and
CACV 184/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 180 OF 2008

(ON APPEAL FROM HCA 2057 OF 2007)

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J U D G M E N T

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Hon Cheung JA :

The appeal

1.  On 27 September 2007 the plaintiff issued the writ in the present action and on the same day obtained, by way of ex parte application, orders from Beeson J which included :

(1)  amareva injunction against the defendants; and

(2)  an order granting the plaintiff leave to serve a concurrent writ on each of the defendants at their addresses in Singapore. 

2.  Pursuant to the order, service of the writ was effected in Singapore on the 2nd defendant but the 1st defendant was unable to be served because his address was no longer in existence.  On 6 October 2007 the 1st defendant was at the Hong Kong International Airport and was served with a copy of the writ together with other court documents. 

3.  On 12 October 2007 Chu J ordered the mareva injunction to continue against the 2nd defendant until the determination of his application to set aside the injunction.  As the 1st defendant was absent, Chu J extended the mareva injunction against him until trial or further order.

4.  On 3 December 2007 the 2nd defendant issued a summons seeking the following relief :

(1)  the concurrent writ and the order allowing the plaintiff to serve the writ outside the jurisdiction be set aside and discharged and that the service of the concurrent writ on him be set aside and all proceedings in the action be stayed; and

(2)  a declaration that this Court has no jurisdiction over him in respect of the subject matter of the plaintiff’s claim.

5.  On 13 December 2007 the 1st defendant issued a summons seeking in similar terms the relief sought by the 2nd defendant.  In addition he also asked for an order declaring that neither the writ nor the order of 27 September 2007 had been served on him. 

6.  The defendants’ applications were heard by Deputy High Court Judge Carlson.  He dismissed the defendants’ applications.  The defendants now appeal to this Court. 

Action by provisional liquidators

7.  The plaintiff is a BVI company incorporated in January 1994.  In 1999 seven creditors of the plaintiff commenced an action in the High Court of Hong Kong (HCA 9505/1999) against the plaintiff.  On 6 April 2001 Waung J gave judgment to the creditors against the plaintiff in the sum of HK$254,480,424.88.

8.  On 23 August 2007 the creditors presented a winding up petition in Hong Kong against the company based on the unsatisfied judgment in HCA 9505/1999. 

9.  On 23 August 2007 Barma J in the winding up proceedings appointed provisional liquidators with power to commence actions in the plaintiff’s name to recover money belonging to or due to the plaintiff as they saw fit. 

10.  Pursuant to the order of Barma J, the provisional liquidators brought the present action against the defendants.  The action was funded by Dato Low, one of the creditors who recovered judgment in HCA 9505/1999. 

Nature of the present claim

11.  According to the statement of claim the plaintiff’s case against the defendants is as follows :

(1)  The defendants had been the plaintiff’s shareholders : the 1st defendant holding 80% of the shares; the 2nd defendant the remaining 20%.  Prior to 23 August 2007 the defendants were also its directors.

(2)  On 5 February 1996 the defendants caused the plaintiff to enter into seven identical written contracts with the seven creditors in HCA 9505/1999 (‘the vendors’) to purchase from them a total of 29,811,016 shares of Sun Cheong International Limited, a publicly listed company in Hong Kong whose name was changed in 1997 to China Development Corporation Limited (‘CDC’).  Under the contract of sale the plaintiff was required to pay for the purchase of the shares from the seven vendors by instalments prior to the date of completion on 2 May 1996 on which date the balance of the purchase price was to be paid and the share certificates and other documents of title would be exchanged.

(3)  The defendants, however, were able to persuade the seven vendors to hand over to them the CDC share certificates before full payment by the plaintiff of the purchase price. 

(4)   The CDC shares which were the only assets of the plaintiff were then charged or pledged by the defendants by way of agreements (‘the pledge agreements’) to the following financial institutions as security for loans made by these institutions to third parties :

1)   23 April 1996 to Commerzbank (South East Asia) Limited (‘Commerzbank’) of 12,032,302 shares (they became 60,161,510 shares after stock split);

2)   29 August 1997 to K G Investments Asia Limited (‘KGL’) of 48,822,700 shares;

3)   Late 1997, to Societe General Singapore Branch of about 28,000,000 shares;

4)   3 November 1997 to Creditanstalt Bankverein of about 10,702,625 new shares.

(5)  Between 1996 and 2000 these financial institutions exercised their rights under the pledge agreements with the plaintiff and sold the CDC shares in diminution of the indebtedness owed to them by third parties. 

(6)  The seven vendors in HCA 9505/1999 sued and obtained judgment against the plaintiff for the unpaid price of the shares. 

(7)  The plaintiff alleged that the defendants owed fiduciary duties to the plaintiff.  They had in breach of the fiduciary duties misappropriated or recklessly endangered the CDC shares by pledging them.  They had also failed to ensure that the CDC share certificates remained incumbent and in safe custody.  The breach caused the plaintiff loss when the CDC shares were eventually sold by the financial institutions.

(8)  The plaintiff claimed that the defendants are accountable to the plaintiff as constructive trustees for the loss incurred by the plaintiff as a result of the defendants’ breach of fiduciary duty and they are obliged to restore the plaintiff to the position that it would have been in had the defendant not committed their breach of fiduciary duty.

(9)  As an alternative cause of action the plaintiff claimed that the defendants conspired together by engaging in an  unlawful and dishonest course of conduct in order to defraud the plaintiff (in particular, to defraud the plaintiff’s creditors at the time when the defendants knew that the plaintiff was either actually insolvent or likely to be insolvent) out of its only assets, namely the partly paid CDC shares.

(10)  The plaintiff pleaded that prior to 23 August 2007 it was prevented by fraudulent concealment from discovering or taking actions against the defendants in order to hold them accountable for their fraudulent breach of fiduciary duty to the plaintiff.  The facts pleaded in support of the fraudulent concealment were :

1)the defendants together held 100% of the shares in the plaintiff;

2)prior to 23 August 2007, the management of the plaintiff was conducted by its board of directors, which comprised the defendants; and

3)the defendants would not cause or permit the plaintiff to take action against them on behalf of the plaintiff (including the creditors of the plaintiff) so as to hold the defendants accountable for their breach of fiduciary duty, including the breach of trust which they caused the plaintiff to commit while acting as trustee in possession of the partly paid CDC shares.

(11)  The remedies sought by the plaintiff in this action are, among other things,

1)An order that the defendants account to the plaintiff for the value of the plaintiff’s property, which had been misappropriated or recklessly endangered by them and thereby causing loss to the plaintiff.

2)Alternatively, equitable damages or restitution to restore the plaintiff to the position it would have been in had the defendants not breached their fiduciary duties.

3)Alternatively, damages.

Service of the writ

12.  I will address the issue of the service of the writ first, namely, in respect of the 1st defendant whether he was validly served in Hong Kong and in respect of the 2nd defendant whether the conditions for service out of jurisdiction of the writ had been satisfied.

The 1^st defendant

13.  The first issue to decide is whether the 1st defendant was validly served in Hong Kong at the Airport. 

14.  On 6 October 2007 the plaintiff received information that the 1st defendant was at the airport and a process server, Mr. Sze together with his assistant were waiting there to serve the writ on him.  To ensure that the service was recorded, the assistant of Mr. Sze recorded the service with a video camera, although no sound was recorded of the conversation between Mr. Sze and the 1st defendant. 

15.  The video of the service was viewed by the Judge who described the events as follows.  There was an exchange between the 1st defendant and Mr. Sze.  The 1st defendant was not prepared to stop.  Mr. Sze said something to 1st defendant and attempted to hand over a package to him but the 1st defendant refused to accept it and proceeded to walk away.  The package that Mr. Sze attempted to hand over to the 1st defendant consisted of the writ, the affirmation in support of the application for mareva injunction and service out of jurisdiction and the order granted by Beeson J.

16.  Mr. Sze then placed the package on top of the 1st defendant’s small trolley suitcase which he was pulling along.  As the 1st defendant walked away the package fell off his suitcase. 

17.  Mr. Sze said that he told the 1st defendant that he wanted to give him ‘Court documents’.  The 1st defendant insisted that at no time had Mr. Sze said anything to him as to the nature or content of the documents.  The video clearly showed that something was said by Mr. Sze to the 1st defendant. 

18.  The Judge held that considering the purpose of Mr. Sze was to effect service of the court documents on the 1st defendant, it was inherently probable that Mr. Sze did not inform the 1st defendant that he was being served with court documents.  He found that there was proper service of the writ on the 1st defendant. 

Order 65, rule 2

19.  A writ is a document that requires to be personally served on a defendant.  Order 65, rule 2 of the Rules of High Court provides that personal service of a document is effected by leaving a copy of the document with the person to be served. 

20.  In terms of personal service, the process server must hand the relevant document to the person upon whom he has to serve.  If that person will not accept the document, the only concession to practicality is for the server to tell him what the document contains and leave it with or near him : see Kenneth Allison Ltd and others v. A. E. Limehouse and Co. (a firm) [1992] 2 AC 105 per Lord Goff of Chieveley. 

21.  In terms of ‘leaving’, once the intended recipient (assuming him to have the required knowledge of its nature) has been given a sufficient degree of possession of the document to enable him to exercise dominion over it for any period of time however brief, the document has been left with him in the sense intended by the rule : see Nottingham Building Society v. Peter Bennett and Co. (a firm), decision of the English Court of Appeal dated 14 February 1997 per Waite LJ. 

22.  Paragraph 65/2/3 of the Hong Kong Civil Procedure 2009 also summarises how the personal service is to be effected :

‘  Manner of effecting personal service—To effect personal service the clerk or other person entrusted with the task should first satisfy himself that he has found the correct person.  He should then hand to or leave with the person to be served a copy of the writ.  If the person served will not take the copy, he should tell him what it contains and leave it as nearly in his possession or control as he can. 

  If the defendant refuses to take the copy writ it is not necessary to leave it in his actual corporeal possession, but it is sufficient to inform him of its nature and throw it down in his presence (per Patteson J. in Thomson v. Pheney (1832) 1 Dowl. 441); yet this must be done under such circumstances as to bring the case within the above rule.  It is not sufficient to hand the defendant the copy writ enclosed in an envelope without informing him that it is a copy writ (Banque Russe v. Clark [1894] W.N. 203).

23.  Although the 1st defendant refused to accept the writ, I agree with the Judge that what immediately followed constituted valid service of the writ on him.  I accept the Judge’s finding that Mr. Sze had, in fact, informed the 1st defendant that the package he was handing over was court documents.  This is based on the inherent nature of the event.  In my view the writ was also left with the 1st defendant. 

What has to be said by the server

24.  The only substantive argument on this issue is whether Mr. Sze was required to inform the 1st defendant that the package consisted of a writ or whether it was sufficient for him to say that the package consisted of court documents.  While I accept that it was not difficult for Mr. Sze to inform the 1st defendant that the package consisted of a writ, my view is that it was sufficient for him to inform the 1st defendant that the package consisted of court documents. 

25.  I agree with the view expressed by Hoffmann LJ (as he then was) in Walters and others v. Whitelock (decision dated 19 August 1994) that a practical approach must be adopted.  It is sufficient to bring to the attention to the person being served that it is a legal document which requires his attention.  The purpose of the requirement that he be told is that he should not be able to say that he ignored the document on the grounds that it was simply junk mail or something which did not necessarily require his attention at all. 

26.  I do not accept that this approach is confined to situations where the person to be served was already engaged in legal proceedings with the other party and previously had been served with legal documents by the other party.  In my view so long as the person to be served knew that he was being served with court documents which required his attention, it was sufficient to constitute valid service provided the other conditions were fulfilled as well. 

27.  Since the 1st defendant was validly served there was no need, as was accepted by his counsel Mr. Maurellet, to consider his application to set aside the order for service of the writ outside jurisdiction. 

Service out of jurisdiction against the 2nd defendant

28.  Service of a writ outside the jurisdiction of Hong Kong is permissible with the leave of the Court in situations enumerated by Order 11, rule 1 of the Rules of High Court.  The situations relied upon by the plaintiff in this case are under paragraphs (f) and (p) namely,

‘(f)  the claim is founded on a tort and the damage was sustained, or resulted from an act committed, within the jurisdiction;

(p)  the claim is brought for money had and received or for an account or other relief against the defendant as constructive trustee, and the defendant’s alleged liability arises out of acts committed, whether by him or otherwise, within the jurisdiction.’

How leave is to be granted

29.  In order to obtain leave under Order 11, rule 1, the plaintiff must satisfy the Court that :

1) there is a good arguable case (in the sense that there is a good prospect of success at trial, per Kempster J in Deak & Anor v. Deak Perera Far East Ltd (In liquidation) [1991] 1 HKLR 551) that his case comes within paragraphs (f) and (p).

2) the discretion should be exercised in its favour in that,

(1)  there is a serious issue to be tried on the merits of the case

(2)  Hong Kong is the appropriate forum under the principle governing ‘forum conveniens’ for the trial of the action.

See Deak and Seaconsar Ltd v. Bank Markazi [1994] 1 AC 438.

Paragraph (f)

30.  The tort is the conspiracy to defraud.  No issue is taken on the nature of the claim.  Paragraph (f) envisages two situations in respect of a tort claim, namely,

(1)  either the damage was sustained in Hong Kong

(2)  or the damage resulted from an act committed within the jurisdiction.

31.  Mr. Fok S.C. who appeared with Mr. Stock as counsel for the plaintiff relied on the former, namely, the damage was sustained in Hong Kong.

32.  There was a dispute between the parties as to where the damage was sustained.  The plaintiff argued that it was sustained in Hong Kong where the Hong Kong listed CDC shares were eventually disposed of by way of forced sale in the Hong Kong Exchange.  The 2nd defendant argued, on the other hand, that the damage was sustained when the shares were first pledged and there was a dispute as to where the pledges took place.

33.  In considering whether damage is sustained in Hong Kong it is sufficient if some significant damage had been sustained here : see Slade LJ in Metall Und Rohstoff A G v. Donaldson Lufkin & Jenrette Inc and Another [1990] 1 Q B 391 at 437.

34.  In my view, in considering paragraph (f), irrespective of the question where the shares were pledged, the plaintiff had also pleaded that it sustained loss when the shares were sold by the financial institutions.  CDC is a Hong Kong listed company and the sales were effected in Hong Kong.  In other words significant damage had been sustained in Hong Kong.

35.  In my view the plaintiff has established a good arguable case that paragraph (f) was satisfied, namely, the claim was founded on a tort and the damage was sustained within the jurisdiction.

Paragraph (p)

36.  As to paragraph (p) the issue is whether the acts which formed the basis of liability of the defendants as constructive trustees were committed in Hong Kong. 

37.  In deciding this question one has to ask whether liability arose from substantial and efficacious acts committed within the jurisdiction, irrespective of whether or not other substantial and efficacious acts have been committed elsewhere : if the answer is yes, jurisdiction is assumed and leave may be granted, subject to other factors being satisfied, : Metall Und Rohstoff AG at page 43. 

38.  The evidence showed that the pledges to Commerzbank, Societe General and Creditanstalt Bankverein were made in Singapore.  The Judge found that the KGL pledge was probably made in Hong Kong.  The statement of claim expressly pleaded that the KGL pledge was made in Hong Kong.  The KGL pledge agreement did not reveal the place of execution.  However, Ms Lau Wu Kwai King Lauren of the provisional liquidators in her second affirmation stated the KGL pledge was likely executed by KGL and 1st defendant in Hong Kong having regard to the following :

‘ 2.4According to the terms of the KGL Charge:

(a)KGL is a company incorporated in Hong Kong, with registered office at Asia Pacific Finance Tower, 27thFloor, Citibank Plaza, 3 Garden Road, Central, Hong Kong; and

(b)The address for service of notices on KGL is also in Hong Kong, at the above address (Clause 6.2)

(c)At all material times, KGL also carried on business in Hong Kong, again at the above Hong Kong address.

KGL Charge governed by Hong Kong law and Parties thereto submit to jurisdiction of Hong Kong Courts

2.5 According to Clause 8 of the KGL Charge:

(a)The terms of the KGL share charge are governed by Hong Kong law; and

(b)The parties thereto irrevocably submit to the jurisdiction of the courts of Hong Kong and waive any objection to proceedings in such courts on the ground of venue or on the ground that the proceedings have been brought in an inconvenient forum.’

39.  On the other hand, the 1st defendant, in his second affirmation stated that the negotiations of the KGL pledge took place outside Hong Kong although he could not recall where the document was signed.  He maintained ‘the actual agreement to charge (i.e. the pledge of CDC shares) was reached outside Hong Kong; everything else is merely a documentation of that fact’.  He further stated that he was operating out of the Singapore at that time and the KGL executives he dealt with frequently travelled to Singapore at the relevant times.

40.  In my view in the absence of direct evidence from the 1st defendant that the KGL pledge was executed in Singapore, the Judge was entitled to hold on the evidence that it was likely that the KGL pledge was executed in Hong Kong.  In any event the pledging of the KGL shares supported the plaintiff’s argument that the acts which formed the basis of liability were substantially and efficaciously committed in Hong Kong irrespective of where the other pledges took place.

41.  Likewise for paragraph (p), based on the above analysis I am satisfied that the defendant’s liability as constructive trustees arose out of acts committed within the jurisdiction.

Good arguable case

42.  The plaintiff accordingly has shown a good arguable case that the situation is covered by paragraphs (f) and (p).

Merits of the plaintiff’s claim

The long delay

43.  The most striking feature in this case is the long delay by the plaintiff in bringing forward this claim.

44.  The CDC shares were pledged between 1996 and 1997.  Two of the pledge agreements, namely those of Commerzbank and Creditanstalt Bankverein were disclosed in the BVI Company Registry.  The forced sales took place between 1997 and 2000 and by 6 April 2001 judgment was obtained by the vendors against the plaintiff in respect of the shares.  Yet the present action was only commenced on 27 September 2007.

45.  In respect of the claim based on tort the limitation period is six years from the accrual of the cause of action.  Whether the accrual of the cause of action begins from the date of the pledge agreements or from the eventual forced sales, the limitation period has expired.

46.  In respect of the claim based on trust, there is a serious issue whether laches will apply irrespective of whether limitation applies to such a claim.

Limitation Ordinance

47.  The plaintiff’s response to the delay on the tort claim is section 26(1) of the Limitation Ordinance (Cap. 347) which provides that,

‘(1) Subject to subsection (4), where in the case of any action for which a period of limitation is prescribed by this Ordinance, either–

(a) ……

(b)any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or

(c) ……

the period of limitation shall not begin to run until the plaintiff has discovered the ……, concealment …… or could with reasonable diligence have discovered it.’

48.  In respect of trust claim the plaintiff also relied on section 20(1) which provides that

‘   (1)  No period of limitation prescribed by this Ordinance shall apply to an action by a beneficiary under a trust, being an action–

(a)……

(b)to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use.’

Serious question to be tried on delay

49.  The Judge said that the issue of limitation should only be addressed at the trial although he did not discuss why on the facts of this case this should be so.  On analysis, I have to say that the issue of limitation is a difficult matter and I am not prepared to say that the plaintiff’s case is bound to fail by reason of limitation if a striking out analogy is to be adopted.

50.  The unique feature is that this action is funded by Dato Low who was one of the seven vendors who had recovered judgment against the plaintiff in 2001.  After the 2001 judgment he had received legal advice that as an unpaid judgment creditor he was entitled to wind up the plaintiff for the purpose of investigating how its affairs were conducted and allowing it to take further steps to recover its loss.  It was not challenged that the solicitor who gave him this advice was the same solicitor who acted for the creditors in the winding up proceedings against the plaintiff upon which the provisional liquidators were appointed and he is also the solicitor acting on behalf of the plaintiff in this action.

51.  Added to this is that the 1st defendant was declared a bankrupt in Hawaii USA in 1998 and a trustee in bankruptcy was appointed over his assets although the 1st defendant remained a director of the plaintiff.  The 2nd defendant became a director in May 1996 and apparently resigned as a director on 17 July 2000.  He served the notice of resignation on the plaintiff’s solicitors in Hong Kong.

52.  In short the argument of the defendants was that the plaintiff actually knew or at least constructively knew (through the knowledge of the creditors) of the pledging of the CDC shares in May 2000 (when Dato Low made his witness statement in HCA 9505/1999). Further there was no concealment on the part of the defendants of the transactions which the plaintiff now relied upon as the basis of its claim against the defendants.  These transactions could with reasonable diligence have been discovered a long time ago.  The recent decision of the Court of Final Appeal in Peconic Industrial Development Ltd v. Lau Kwok Fai and others FACV No. 17 of 2008 which addressed the issue of discovery of misdeeds by reasonable diligence was relied upon.  

53.  My view is that while the action is funded by Dato Low, the action remains an action of the plaintiff itself.  The question as to what extent the knowledge of the creditors who funded the action can be attributed to the plaintiff is a difficult one which cannot be resolved in the present application and in my view there is a serious question raised on this issue.  Likewise the question of whether the knowledge of the trustee in bankruptcy can be taken into account is also a serious issue to be tried.

54.  In respect of matters specific to the 2nd defendant, three of the pledges were effected after he became a director.  His signature also appeared in the Commerzbank pledge.  There is thus also a serious question to be tried as to the 2nd defendant’s role in the transactions complained of by the plaintiff.

Forum conveniens

55.  The only remaining issue on service is how the discretion should be exercised by reference to forum conveniens, namely, whether Hong Kong is the place where the case could suitably be tried for the interests of all the parties and for the ends of justice in accordance with the principles laid down in Spiliada Maritime Corporation v. Cansulex Ltd [1987] 1 AC 460. 

The approach

56.  When this topic is considered in the context of service out of jurisdiction under Order 11, it is important to bear in mind three matters which are distinct from an application to stay Hong Kong proceedings based on forum non conveniens.

1)  The burden in Order 11 cases is on the plaintiff, whereas in cases in respect of stay of proceedings the burden is on the defendant.

2)  In Order 11 cases the plaintiff is seeking to persuade the Court to exercise its discretionary power to permit service on the defendant outside the jurisdiction.  Order 11, rule 4(2) expressly provides that the Court will only do so if the case is ‘a proper one’ for service outside jurisdiction.

3)  The jurisdiction exercised under Order 11 may be ‘exorbitant’ in the sense that the jurisdiction is extraordinary in that under conflict of law rules, a Hong Kong Court will not recognize that a similar power is possessed by a foreign court over a Hong Kong litigant in the absence of some treaty providing for such recognition.  The effect is not merely that the burden of proof rests on the plaintiff to persuade the Court that Hong Kong is the appropriate forum for the trial of the action, but that he has to show that this is clearly so.  In other words the burden is the opposite of that applicable where a stay is sought of proceedings started in Hong Kong as of right, see : Spiliada at 480-481 per Lord Goff.

Real and substantial connection

57.  The issue is whether the plaintiff has raised a serious question that Hong Kong is not only the appropriate forum to try the case but that this is clearly so.  The burden is on the plaintiff.

58.  The ‘appropriate’ or ‘natural’ forum is one ‘with which the action had the most real and substantial connection’.  This includes not only factors affecting convenience and expense (such as availability of witness) but also other factors such as the law governing the relevant transaction and the place where the parties respectively reside and carried on business, Spiliada at page 478.

59.  In my view, the ‘real and substantial connection’ requirement needs to be emphasised.  Modern commercial transactions usually entail multiple jurisdictional aspects.  Like the present case, they may involve, for example, the use of a company incorporated in a foreign country with tax benefits; the acquisition or disposition of assets in different locations; employment of lawyers and accountants in these locations to facilitate the transactions.  Inevitably a case may contain various jurisdictional aspects.  However, some of these aspects may feature only as the backdrop to the case.  They may have little, if any, substantial relevance to the issues that may be required to be canvassed at the trial.  Ultimately one has to consider the forum where the action could most suitably be tried for the interests of all the parties and for the ends of justice.  Comments of a similar nature although differently put have been made by the Courts in the past : the Court is not simply to load up factors which point to any particular jurisdiction but 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 (now Ma CJHC) at 255.

Relevant factors

60.  In my view it is here that the plaintiff runs into difficulties.  The fact that the plaintiff has satisfied the requirement that the claim comes within the ambit of paragraphs (f) and (p) does not mean that one is precluded from examining the factors that had been considered in the paragraphs (f) and (p) context to see if they point towards Hong Kong as clearly the appropriate forum for the purpose of the exercise of discretion.  In some situations these factors may provide the conclusive answer but they are not necessarily so in all cases. 

61.  Factors such as the Commerzbank pledge in Hong Kong, the CDC shares having been sold in Hong Kong and judgment having being obtained in Hong Kong are relevant in so far as they show that there were acts done in Hong Kong and damage was sustained by the plaintiff in Hong Kong.  Where these acts are relied upon in the context of forum conveniens, one has to see whether they are indeed relevant considerations for the trial of the action.

62.  The plaintiff is a BVI company which is not registered in Hong Kong.  It has not carried on any business in Hong Kong.  It did not have any Hong Kong office.  For the purpose of this appeal, one proceeds on the assumption that the defendants controlled the plaintiff during the relevant period.  The defendants are not residents of Hong Kong.  During the period when the alleged misdeeds were carried out, they operated in Singapore.  Three of the four pledges were executed in Singapore.  Even if the KGL pledge was executed in Hong Kong, its place of execution for the purpose of the trial of the action could hardly be a significant factor.  CDC is, of course, a Hong Kong listed company and the pledged shares obviously had to be sold in the Hong Kong Exchange.  But again this factor is not of significance as the disposal was not challenged.

63.  The issue at the trial is whether given the acts that had been done by the defendants, they had breached their fiduciary duties towards the plaintiff.  In relation to the 2nd defendant, a further issue is whether he had participated in the acts which caused the plaintiff loss and damage.  The evidence that the plaintiff may rely upon in support of its claim would probably be based substantially upon the evidence that had been adduced in HCA 9505/1999.  In reality it would be the defendants who would have to give substantial evidence to defend their case.  One may ask why Hong Kong is clearly the appropriate forum to try the two foreign defendants who will give substantial evidence in this case.  Even if Dato Low is to give evidence for the plaintiff on the question of concealment, one has to bear in mind that he is also not a Hong Kong resident.  He is an Indonesian who spends much of his time between Singapore and Indonesia. 

64.  In my view the plaintiff has not really pointed to any factor of real and substantial connection to Hong Kong for the trial of this action.

Irrelevant considerations

65.  The Judge recognized the substantial connection of the dispute with Singapore but he referred to two proceedings in Hong Kong which he described as highly significant.  First he referred to HCA 9505/1999 in which the 1st defendant had taken part and provided a witness statement on behalf of the plaintiff.  However, in that case, Hong Kong was expressly provided to be the forum for the trial of action in the agreement for the sale of the CDC shares by the seven vendors.  The issue in that case was also different in that the vendors were suing the plaintiff for the unpaid balance price of the shares.  This is not as if the defendants themselves had previously submitted to this jurisdiction.  Hence this action cannot be a relevant factor to be taken into account.

66.  Second, the Judge took into account the appointment of the provisional liquidators by the Hong Kong Court.  The presence of provisional liquidators would only become relevant if there is an asset within the jurisdiction in the form of a cause of action which is capable of being brought in Hong Kong.  This is precisely the issue that is being challenged in this case.  Hence the reliance on the appointment of provisional liquidators is circular and does not answer the fundamental question whether Hong Kong is the appropriate forum for the trial of this action in the first place.

Restraints in the exercise of discretion

67.  I am acutely aware that this Court is dealing with an exercise of discretion by the Judge.  As Lord Templeman observed at Spiliada at page 461 :

‘ The solution of disputes about the relative merits of trial in England and trial abroad is pre-eminently a matter for the trial judge, before whom submissions should be measured in hours not days.  An appeal should be rare and the appellate court should be slow to interfere.’

68.  Further this Court is only entitled to interfere where

(1)  the judge has misdirected himself with regard to the principles in accordance with which his discretion had to be exercised;

(2)  the judge, in exercising his discretion, has taken into account matters which he ought not to have done or failed to take into account matters which he ought to have done; or

(3)  his decision is plainly wrong,

see Louvet v. Louvet and Another [1990] 1 HKLR 670 at 673-674.

Hong Kong not clearly the appropriate forum

69.  My view, however, is that the Judge had taken into account irrelevant considerations when he relied on the two matters I have discussed.  Despite the persuasive argument of Mr. Fok, I do not consider that these two factors merely go towards weight and not relevance.

70.  Hong Kong Courts no doubt have the expertise to deal with a case such as this and can adjudicate it with efficiency.  But this is not the test to be applied in forum conveniens matters.  Based on the principles in Spiliada, my view is that the Judge had erred on this aspect of this case.  This entitles this Court to intervene.  In my view based on what I have said the plaintiff has failed to show that Hong Kong is clearly the appropriate forum for the trial of this case against the 2nd defendant.  This being the case the discretion was wrongly exercised to allow service out of the jurisdiction.  The order should be set aside.

Existence of action against the 2nd defendant

71.  Mr. Fok further submitted that although he was not relying on paragraph (c) of Order 11, rule 1, namely, the 2nd defendant is a necessary or proper party to a claim that has been brought against the 1st defendant who had been properly served in Hong Kong, this Court should take this matter into account.

72.  This issue would only be relevant if the 1st defendant is unsuccessful in his application to stay the proceedings by reason of forum non conveniens.  As will be apparent later, I also find for the 1st defendant on this issue, hence the matter will not advance the plaintiff’s case further.

Other matters

73.  Before the Judge there was argument that the plaintiff chose to sue the defendants in Hong Kong because of its concern that the 2nd defendant is related to Mr. Lee Kuan Yew of Singapore and it may not be able to obtain a fair hearing against the 2nd defendant in Singapore.  This point is, of course, no longer pursued in this appeal and there is no need for me to address it.

74.  Further although the issue of full and frank disclosure for the ex parte application before Beeson J had been raised it has not been pursued in this appeal.

The 1st defendant’s stay application

75.  The burden is, of course, reversed in the 1st defendant’s application to stay the action against him based on forum non conveniens.  He bears the burden of showing that not only is Hong Kong not the natural or appropriate forum in the sense I have addressed but there is another jurisdiction available which is clearly or distinctly more appropriate than the Hong Kong forum : Spiliada at page 477 and Louvet at page 674 to 675.  Many of the matters I have discussed earlier on connecting factors in relation to the 2nd defendant apply to the 1st defendant as well.  In my view the 1st defendant has discharged the burden of showing that Hong Kong is not the appropriate forum. 

76.  The 1st defendant relied on BVI or Singapore as the more appropriate forum.  In considering whether there is some other forum which is the appropriate forum, one pertinent factor to consider is whether the plaintiff has founded jurisdiction as of right in Hong Kong : Spiliada at pages 476 to 477.  However, where the connection of the defendant with Hong Kong is a fragile one (for example if he is served with proceedings during a short visit to this country) it should be all the easier for him to prove that there is another more appropriate forum for the trial overseas : Spiliada at page 477.

77.  The 1st defendant was sued by the plaintiff as of right in Hong Kong because he was served in Hong Kong.  However, this was done when he was at the Hong Kong Airport on his departure from Hong Kong.  The 1st defendant’s evidence is that he has never lived in Hong Kong and has never had any assets in Hong Kong.  There is no contrary evidence.  Mr. Fok argued that the reference to ‘fragile connection’ in Spiliada refers to a range of circumstances : at one end is a defendant who comes to Hong Kong for a holiday and at the other end is a defendant who has business activities in Hong Kong.  I am prepared to take this into account but even based on the plaintiff’s evidence, there is no indication that after the delivery of judgment in HCA 9505/1999 in 2001, the 1st defendant had carried out business activities in Hong Kong which made his connection with Hong Kong a more substantial one.  Ultimately the 1st defendant is not a Hong Kong resident.  I am of the view that he has also discharged the burden of showing Singapore to be the more appropriate forum to try this case bearing in mind the matters I have already referred to earlier.  He is entitled to set aside the present proceedings.

Mareva injunction

78.  As the 1st defendant succeeds in staying the action against him and the 2nd defendant succeeds in discharging the order for service out of jurisdiction, the mareva injunctions should be discharged.

Conclusion

79.  Accordingly the appeal is allowed.  The action against the 1st defendant is stayed.  The order granting service of the writ out of jurisdiction against the 2nd defendant is set aside and the service of the writ on him is set aside.  The mareva injunction against both of the defendants is set aside.

Costs

80.  The parties are required to lodge written submissions on costs within 14 days.

Hon Yuen JA :

81.  I agree.

Hon Burrell J :

82.  I agree and have nothing to add.