DUAN QI GUI v. UPPER LIKE INVESTMENTS LTD AND OTHERS

CACV 320/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 320 OF 2007

(ON APPEAL FROM HCA NO. 1004 OF 2005)

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JUDGMENT

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Hon Tang VP (giving the judgment of the Court):

Introduction

1.  This is the 1^st, 4^th and 5^th defendants’ (“these defendants”) appeal against the order of A Cheung J affirming the decision of Master Au Yeung (as she then was) refusing a stay of the action on the ground of forum non conveniens.

Background

2.  According to the Statement of Claim:

(i)      In 1997, the 5^th defendant, a Hong Kong company, owned 95% of the shares in Shanghai Tai Qi Real Estate Company Limited (STQ), which was the developer and beneficial owner of a real estate project in Shanghai.

(ii)      The 1^st defendant is a Hong Kong company.  Between 1997 and 2003, the 2^nd defendant was a director of 1^st defendant and became its largest shareholder, holding 75% of the shares in 1998.

(iii)     Between 1997 and 2003, the 3^rd defendant was also a director of the 1^st defendant, and became a shareholder in 1998 owning 25% of the shares.

(iv)     Between 1997 and 1998, the 2^nd and 3^rd defendants were also directors of Eagle Fair International Limited (“Eagle Fair”), another Hong Kong company.  Eagle Fair had the majority interests in two real estate projects in Qingdao through two PRC joint venture companies.

(v)     On 8 August 1998, the 2^nd defendant became the majority shareholder of Eagle Fair, holding 80% of the shares in trust for the 1^st defendant.

(vi)     The 2^nd defendant held himself out as the person who had full control of the 1^st and 2^nd defendants.

3.  The plaintiff’s claim involved three documents.  The first, dated 8 August 1997, was made between the plaintiff acting on behalf of the STQ with the 1^st defendant whereby it was agreed that STQ’s interest in the Shanghai project would be transferred to the 1^st defendant in exchange for the 1^st defendant’s assignment to the 5^th defendant of its majority interests in the two Qingdao projects (the “Properties Exchange Agreement”) (presumably through Eagle Fair).

4.  Under the Properties Exchange Agreement, it was agreed that the 1^st defendant should pay STQ the sum of RMB132,000,000 by way of equalisation money by instalments.  The 1^st instalment of RMB42,000,000 was to be paid upon the transfer of the Shanghai project to the 1^st defendant.

5.  The second, dated 11 December 1997, was an agreement made between the 5^th defendant represented by the plaintiff, and the 1^st defendant represented by the 2^nd defendant (the “Supplemental Agreement”).  The Supplemental Agreement, inter alia, confirmed and agreed that the equalisation money due to the 5^th defendant was RMB136,857,000, payable by instalments as follows:

(1)     The sum of RMB 26,875,000 to be paid on the day when the exchange formalities were committed.

(2)     The sum of RMB 20,000,000 to be paid within 10 days after the completion of the exchange formalities.

(3)     The balance of RMB 90,000,000 together with interest to be paid on or before 10 December 1999

6.  The third document is a letter of authorisation in Chinese dated 20 December 1998 signed by the 2^nd defendant confirming that the equalization money should be paid and the interests in the two Qingdao projects transferred to the plaintiff instead of the 5^th defendant.

7.  It is the plaintiff’s case that pursuant to the Properties Exchange Agreement and the Supplemental Agreement, she has transferred the entire share capital in the 5^th defendant to the 2^nd defendant (9,999 shares) and the 3^rd defendant (1 share) on 15 December 1997.  The 3^rd defendant has since transferred the 1 share to the 4^th defendant.  It is the plaintiff’s case that she has discharged her contractual obligations under the Properties Exchange Agreement and the Supplement Agreement.

8.  It appears to be common ground that RMB 55,100,000 had already been paid to the plaintiff by the 1^st defendant, pursuant to the Properties Exchange Agreement and the Supplemental Agreement.

9.  By her claim, she asked that the transfer of the shares by the plaintiff to the 1^st, 2^nd and 3^rd defendants be set aside.  And that the 1^st, 2^nd, 3^rd and 4^th defendants should transfer the shares to the plaintiff together with all proper accounts enquiries and directions and alternatively damages to be assessed.

10.  From evidence filed on behalf of these defendants, it appears that they alleged that because of undisclosed or under-disclosed liabilities, they have a set off and counterclaim against the plaintiff.

11.  Against such background it appeared that the parties have proceeded on the basis that subject to the defendants’ set off, the plaintiff has an viable claim against these defendants.  For example, Mr Tan Kuang Hwee of the firm of Arculli Fong & Ng, Solicitors for these defendants said in para. 29 his affirmation affirmed on 21 July 2006, that because of the detention of the plaintiff:

“… the transfer formalities of Qingdao Projects could not be effected while the Plaintiff was still in detention because she was not able to execute the requisite transfer documents at that time. It was also not certain at that time whether the transfer would comply with the laws of the PRC as stipulated in the Properties Exchange Agreement if the Plaintiff was found guilty of the offences in which case all her assets would be forfeited by the State.”

The judgment

12.  A Cheung J applied the well known three-stage test in Spiliada Maritime Corporation v Cansulex Ltd [1987] 1 AC 460.

13.  On stage 1, he concluded that these defendants succeeded in showing that Hong Kong is not the natural or appropriate forum and that either the People’s Court in Shanghai or that in Qingdao is clearly or distinctly a more appropriate forum than the court in Hong Kong.  There is no appeal from this.

14.  On stage 2, he concluded that in proceedings in Hong Kong, the plaintiff has the benefit of a juridical advantage.  The learned judge said:

“33.   … However, it is not disputed that put at the lowest, there is a real risk that if the plaintiff were forced to commence proceedings now in the People’s Court on the Mainland, the proceedings against the defendants would be time barred, on the available expert opinions on Mainland law.  That is not disputed.”

15.  According to the evidence before the learned judge, it appears that the relevant limitation period in the Mainland was 2 years, which would have expired some time in 2001.

16.  Mr. Jat Sew Tong, SC, leading Mr. Victor Dawes, for these defendants, submitted that according to the evidence of the plaintiff’s own expert on Mainland law, time would run afresh if, before the expiration of the limitation period, the claim had been asserted in writing, e.g. by letter.  He relied on the legal opinion written by the plaintiff’s expert Guangxin Lawyers dated 23 March 2007 which stated:

「如果权利人能够证明其在诉讼时效期间内曾经向对方主张权利，诉讼时效中断并重新开始计算诉讼时效。如果权利人在诉讼时效期间届满后才提起诉讼，而又不具有任何可以使诉讼时效期间中止或中断的情形，那么权利人的权利很可能不会得到法院的保护，从而丧失胜诉权。」

17.  Mr Jat also referred us to a letter written by Guang Dong Dowell Law Firm, the plaintiff’s lawyer in Guangzhou dated 24 May 2001, reserving the plaintiff’s right to claim in respect of the three documents.  A similar letter was sent on 21 April 2003.  Thus, according to Mr Jat, time had been extended.

18.  These defendants’ own expert, King & Wood, did not expressly deal with this matter in its advice.

19.  We are not prepared to proceed on the basis that Guangxin Lawyer’s advice is correct.  It is so inherently improbable that we are not prepared to rely on a bare assertion by them.  They have cited no authority in support.  Indeed, as will be seen, the parties’ primary contention before the learned judge was whether the plaintiff had acted unreasonably in allowing the limitation period to expire in the Mainland and, if not, whether waiver on the part of these defendants in proceedings in the Mainland would remove any juridical advantage which the plaintiff might have in Hong Kong.

20.  Mr Jat’s principal point before us was that the plaintiff had acted unreasonably in allowing the limitation period in the Mainland to run out.  He referred us to the well known passage in Lord Goff of Chieveley in Spiliada at pages 483 to 484:

“… But, in my opinion, this is a case where practical justice should be done.  And practical justice demands that, if the court considers that the plaintiff acted reasonably in commencing proceedings in this country, and that, although it appears that (putting on one side the time bar point) the appropriate forum for the trial of the action is elsewhere than England, the plaintiff did not act unreasonably in failing to commence proceedings (for example, by issuing a protective writ) in that jurisdiction within the limitation period applicable there, it would not, I think, be just to deprive the plaintiff of the benefit of having started proceedings within the limitation period applicable in this country.  This approach is consistent with that of Sheen J. in The Blue Wave [1982] 1 Lloyd’s Rep. 151.  It is not to be forgotten that, by making its jurisdiction available to the plaintiff – even the discretionary jurisdiction under R.S.C., Ord. 11 – the courts of this country have provided the plaintiff with an opportunity to start proceedings here; accordingly, if justice demands, the court should not deprive the plaintiff of the benefit of having complied with the time bar in this country.  Furthermore, as the applicable principles become more clearly established and better known, it will, I suspect, become increasingly difficult for plaintiffs to prove lack of negligence in this respect.  The fact that the court has been asked to exercise its discretion under R.S.C., Ord. 11, rather than that the plaintiff has served proceedings upon the defendant in this country as of right, is, I consider, only relevant to consideration of the plaintiff’s conduct in failing to save the time bar in the other relevant alternative jurisdiction.  The appropriate order, where the application of the time bar in the foreign jurisdiction is dependent upon its invocation by the defendant, may well be to make it a condition of the grant of a stay, or the exercise of discretion against giving leave to serve out of the jurisdiction, that the defendant should waive the time bar in the foreign jurisdiction; this is apparently the practice in the United States of America.”

21.  Here, the learned judge said:

“37.   … The question boils down to whether the plaintiff has acted unreasonably in allowing time to have lapsed on the Mainland, particularly whether ‘without good reason’ she has ‘deliberately and advisedly allowed the time limit to expire’ without instituting proceedings there.”

22.  In this context, we proceed on the basis that the limitation period expired some time in 2001.  Mr Jat submitted that the writ in the present action which was issued on 30 May 2005 was issued shortly before the expiration of 6 years from the accrual of the plaintiff’s cause of action.  If that is right, it would appear that by the same reckoning, the Mainland limitation period would have expired in about May 2001.

23.  Mr Jat submitted that the learned judge has erred.  First, because the learned judge relied on the plaintiff’s subjective claim that she has lost confidence in the administration of justice in the Mainland.  Secondly, he proceeded on the basis that the burden was on these defendants to show that her inaction was unreasonable. 

24.  We accepted that the burden of proof is indeed on the plaintiff.  Otherwise Lord Goff would not have referred to the difficulty for plaintiffs to prove lack of negligence.  But, we do not believe the learned judge has erred.  The learned judge said:

“42.   … regardless [who had] the evidential burden [he was unable to conclude] that the plaintiff has deliberately and advisedly for no good reason allowed the time limit to expire on the Mainland, or that she has acted unreasonably in the matter.”

25.  We turn to the plaintiff’s evidence that she has lost confidence in the administration of justice in the Mainland. 

26.  We have already referred to para. 29 of Mr Tan Kuang Hwee’s affirmation in para. 11 above.  Mr Tan went on to say:

“30.   The Plaintiff was finally sentenced to death in 2001 for corruption and misappropriation of public funds at the People’s Court of the City of Zhongshan. It is not the Defendants’ knowledge if the Plaintiff has successfully appealed against the conviction. If the conviction is not set aside, I have been advised that generally under the laws of the PRC, a convict’s freedom of movement will be seriously restricted and will certainly not be allowed to leave the country. Therefore in this case, there is a possible issue on whether the Plaintiff will be able to come to Hong Kong and to be cross-examined if the trial of this action is held in Hong Kong. A copy of the judgment delivered by the People’s Court of the City of Zhongshan is now produced and marked as ‘TKH-11’.

31.    As the Plaintiff was still in detention before the taking over of Qingdao Projects, there was some uncertainty on who should proceed with the outstanding construction works of Qingdao Projects. If the construction works remained outstanding, there was a risk that the land use right would be forfeited by the municipal office of Qingdao. Copies of the various notices issued by the Qingdao Municipal Office for Disposal of Unused Land and Uncompleted Real Estate Developments（青島巿外置積壓房地產辦公室）are now produced and marked as ‘TKH-12’. Fu Zhe Cheng and Jin Fu Da Xia were some of the projects referred to in these notices in which the Municipal Office had required these projects to be completed within the stipulated time failing which the land use right would be forfeited.”

27.  We gather from the decision of the People’s Supreme Court of Guang Dong Province dated 28 August 2002（刑事裁定书（2001）粤高法刑经终字第175号）that the plaintiff was first detained on 29 July 1999.  She was formally arrested on 10 August 1999 and had remained in custody.  On 5 March 2001, she was sentenced to death for corruption and all her properties confiscated by People’s Intermediate Court of Guang Dong Province（广东省中山巿中级人民法院）.

28.  Her appeal to the People’s Supreme Court of Guang Dong Province was successful and by the judgment of 28 August 2002, a retrial was ordered.

29.  From a copy of another judgment of People’s Supreme Court of Guang Dong Province made in 27 May 2005, it appeared that on the retrial, she was once again convicted of corruption and was sentenced to death but suspended for 2 years.  All her properties were again confiscated.  It appeared from the 2005 judgment that the suspended death sentence was also set aside and the plaintiff was instead sentenced to 14 years’ imprisonment for职务侵占罪by the People’s Supreme Court of Guang Dong Province.

30.  However for reasons which are not clear to us, the plaintiff seemed not to have been required to serve out her term in prison.  She has been able to come to Hong Kong, and can come to Hong Kong to testify if necessary.

31.  The question that we have to ask is to look at objectively whether on the facts the learned judge’s conclusion that she had not acted unreasonably was so wrong that we can justifiably intervene.

32.  In her affirmation, the plaintiff said she had not started proceedings in the Mainland because she has lost confidence in the administration of justice there.

33.  Mr Jat submitted that she had no reason to lose confidence in the administration of the justice in the Mainland.  After all, both of her appeals were successful.  More importantly, he submitted such bare assertion by the plaintiff, even if sincerely held, should not be relied on by the learned judge.  Mr Jat referred us to what Lord Diplock said in The Abidin Daver [1984] AC 398 at 411:

“… a mere belief, however genuinely held, by a would-be plaintiff or his legal advisers that it would be to his advantage to pursue an action in the English court rather than to participate in proceedings in what would appear to be the more natural and appropriate forum is insufficient to justify refusal of a stay, unless the belief is supported by objective evidence.

The possibility cannot be excluded that there are still some countries in whose courts there is a risk that justice will not be obtained by a foreign litigant in particular kinds of suits whether for ideological or political reasons, or because of inexperience or inefficiency of the judiciary or excessive delay in the conduct of the business of the courts, or the unavailability of appropriate remedies. But where there is already a lis alibi pendens in a foreign jurisdiction which constitutes a natural and appropriate forum for the resolution of the dispute, a plaintiff in an English action, if he wishes to resist a stay upon the ground that even-handed justice may not be done to him in that particular foreign jurisdiction, must assert this candidly and support his allegations with positive and cogent evidence. …”

34.  We accept that if a plaintiff wishes to resist a stay on the ground that even-handed justice may not be done to him in the Mainland, he must assert this candidly and support his allegations with positive and cogent evidence.  There is no such evidence in this case. 

35.  Here, the plaintiff was trying to explain why she had not started proceedings in the Mainland and the question is whether the failure to commence proceedings was unreasonable.  Even so, the court should not act on bare assertions.  What evidence should be required must depend on the circumstances.  Sometimes a person’s experience in a certain jurisdiction was so harrowing that even if objectively speaking even handed justice could be obtained in that jurisdiction, the inaction by that plaintiff might not be regarded by an objective bystander as unreasonable.

36.  Mr Jat said that the learned judge has mistakenly taken the plaintiff’s allegation as the basis for the exercise of his discretion.  This is what the learned judge said:

“39.   It is true that there is no direct evidence, particularly no direct evidence from the plaintiff, as to why no proceedings were commenced on the Mainland.  But on the materials available, I do not think I can conclude that it is clear that the plaintiff has failed to commence proceedings on the Mainland unreasonably and that her conduct shows that without good reason she has deliberately and advisedly allowed the time limit to expire without commencing proceedings on the Mainland.  It is true that during her imprisonment, she had access to Mainland lawyers and could have, at least in theory, given instructions to her lawyers to commence proceedings on the Mainland even though she was in prison.  However, it is her evidence, although given in relation to her criminal trial, that she had (and has) no confidence in the Mainland legal system at all.  In those circumstances, it is not wholly surprising that she did not commence any legal proceedings against the defendants on the Mainland to pursue her claim.

40.    In my view, one must not lose sight of the reality of the matter.  The plaintiff has been convicted of serious criminal offences on the Mainland and has been at one stage sentenced to death.  Although the sentence has subsequently been reduced to a period of imprisonment, she has – subjectively – lost all confidence in the Mainland legal system.  She says so in terms in her affirmations filed in these proceedings.  It is against that background that one must consider, on the existing materials, whether she has acted unreasonably in not commencing a civil claim against the defendants on the Mainland, or whether she has deliberately refrained from doing so, so as to gain an undue juridical advantage by suing in the Hong Kong court.”

37.  We do not agree the learned judge had simply relied on the plaintiff’s assertion that she had no confidence in the administration of justice in the Mainland.  It is quite clear that the learned judge had taken into consideration all the circumstances of case including the fact that at one stage she was under the sentence of death.  The learned judge went on to say:

“41.   Unlike the situation dealt with by Lord Goff in Spiliada in the passage extracted above, the present case is not a case on Order 11, rule 1.  Rather, the plaintiff has founded her action against the defendants in Hong Kong as of right.  That is by no means a conclusive factor, but nonetheless it is a factor to be taken into account, particularly in relation to ‘consideration of the plaintiff’s conduct in failing to save the time bar in the other relevant alternative jurisdiction’ (per Lord Goff in Spiliada at page 484C/D).  In other words, as I understand it, the fact that a plaintiff can sue and has in fact sued the defendant in the local forum as of right is a relevant factor in considering whether he or she has acted unreasonably in not commencing an action in the alternative jurisdiction before the expiry of the limitation period there.

42.    On the whole, although the evidence is not entirely satisfactory, I am unable to conclude, regardless of where the evidential burden actually lies, that the plaintiff has deliberately and advisedly for no good reason allowed the time limit to expire on the Mainland, or that she has acted unreasonably in the matter.”

38.  During the relevant limitation period, which according to Mr Jat, expired in May 2001, the plaintiff was detained from July 1999 in respect of charges which resulted in the death sentence in March 2001, which was not overturned until 28 August 2002.  There was also the confiscation of all her assets in March 2001 and perhaps more importantly, the prospect of these consequences when she was detained pending trial .  In such circumstances, we do not believe the learned judge’s view that her inaction was not unreasonable could be faulted.

39.  In any event, if the learned judge could be said to have exercised his discretion on the wrong basis, for our part, we say that in the circumstances of this case, look at objectively, the plaintiff could not be said to have acted unreasonably in not starting proceedings in the Mainland during the limitation period. 

40.  It is true that on 24 May 2001, a lawyer wrote a letter reserving her claim.  But one should not overlook what Mr Tan said in his affirmation:

“29.   … Because of her detention, the 1^st Defendant was not able to contact the Plaintiff … transfer formalities … could not be effected while the Plaintiff was still in detention because she was not able to execute the requisite transfer documents at that time.”

Mr Tam also highlighted that if the plaintiff was found guilty all her assets would be forfeited.  This would have a bearing on the inaction of the plaintiff in the Mainland.

41.  If, as Mr Jat submitted, the test is objective, the court can take these objective circumstances into consideration when deciding whether she had acted unreasonably, even if the plaintiff had not clearly or expressly relied on them herself.

42.  One must look at the matter with common sense.  We are satisfied that on the facts both the learned Master and the learned judge has come to the right conclusion.

Waiver

43.  These defendants are prepared to waive the time limit.  Mr Jat submitted that the waiver would be effective in the Mainland.  He relied on the evidence of King & Wood.

44.  This is what the learned judge said about wavier:

“Waiver of limitation defence

43.    As regards the question of waiver of the limitation defence, the defendants have through counsel offered an undertaking to waive such a defence on the Mainland if the present action is stayed in favour of litigation on the Mainland.  There are several difficulties.  First, it is not entirely clear from the expert evidence on Mainland law that such a waiver will be accepted by the courts on the Mainland.  It is common ground that so far as the written law is concerned, there is no provision allowing a waiver of the limitation period.  I accept that the legal opinion prepared by King & Wood, expert for the defendants, sets out in some detail what will likely be the reaction of the People’s Courts in relation to a waiver of the limitation defence.  I am prepared to assume, for present purposes, that more probable than not, such a waiver will be accepted by the People’s Courts.  But I do not think one can go so far as to say that there is no real risk of the People’s Courts insisting on the application of the limitation period.”

45.  Mr Jat submitted that learned judge erred.  He submitted since the learned judge was prepared to assume,

“… for present purposes, that more probable than not, such a waiver will be accepted by the People’s Courts …”,

the reference to “real risk” was wrong.

46.  We believe when the learned judge said one could not say

“… there is no real risk of the People’s Courts insisting on the application of the limitation period.”

he had in mind what Hunter JA said in The Adhiguna Meranti [1987] HKLR 904 at 919:

“(1)   Time Bar

The evidence of Indonesian law leaves it quite uncertain whether the Indonesian courts would regard themselves as bound by the defendants’ waiver and not raise limitation for themselves.  Equally uncertain in terms of comity is their attitude to an undertaking apparently ‘extracted’ from one party in order to have the case tried in Indonesia at all.  We are not satisfied that this undertaking is effective to fulfil its intended purpose.”

47.  We do not agree that the learned judge has erred.  In any event, having regard to the fact that the Mainland system is not adversarial, on the evidence we are of the view that it is uncertain whether the Mainland court would regard itself bound by such waiver.

48.  The evidence before us is not clear enough to enable us to conclude, on the balance of probability, that that is the case.

Discretion

49.  Even though the court retains a discretion to grant a stay notwithstanding that juridical disadvantage is established, it is a discretion to be exercised by the learned judge.  We are not satisfied that the learned judge has erred.  In any event, we would exercise the discretion in the same way.

The 2^nd and 3^rd defendants

50.  The learned judge also took note of the fact that the 2^nd and 3^rd defendants who have not been served, might not be prepared to waive limitation.

51.  We were told that the 2^nd and 3^rd defendants have not been served and the writ has not been renewed so far as they are concerned.  So we disregard them for the purpose of this appeal.  Since the action can proceed without the 2^nd and 3^rd defendants, the fact that they are no longer parties should not matter.

Conclusion

52.  For the above reasons, the appeal is dismissed with costs.